The Guardian 16 February, 2005
Is the boom about to bust?
Are higher interest rates needed?
By all accounts in the daily media the economy is booming. Profits are rolling in at record levels, there are labour shortages, the stock market has hit record heights and the Australian dollar is strong. Industry is operating at near capacity levels, business investment is set to boom and the resources sector is lining up lucrative contracts. It's as good as it gets! That's the media's version, but is it all so rosy? And should the Reserve Bank be talking about raising interest rates?
As half-yearly corporate profit results flow in, declared profits are around 30 percent higher than for the same period 12 months ago.
"Telstra profit surge" reads one headline, with Telstra reporting a six-month profit of $2.34 billion and promising to hand over $4.5 billion to its shareholders in dividends over the next three years. How they could be so stupid to announce they were going to pull the plug on Lifeline a few days later is beyond comprehension. They got the public backlash they deserved, and hopefully will change their mind and continue to provide support for such a vital life-saving service.
Profits have been rolling in for the big mining corporations. Rio Tinto is promising to pay its shareholders $1.96 billion in the next two years at the same time as making billions of dollars more new investments. BHP Billiton is likewise rolling in money.
"CBA posts $1.9bn profit bonanza", reads another good news headline. The Commonwealth Bank's profit for the first half of the financial year rose by 50 per cent — yes 50 per cent!
And how did these and the many other big corporations see such obscene hikes in profits? In short, it was primarily through the intensification of the exploitation of their workforces and in the case of the banks the ripping off of ordinary customers with huge fees and exorbitant interest rates on credit cards in particular.
Tens of thousands of workers have been sacked, thousands of workers work 12-hour shifts or hours of often unpaid overtime. Casualisation and contracting out are letting companies off the hook when it comes to meeting workers' entitlements. Some have gone offshore — e.g. call centres and data processing.
Workers who keep their jobs are under incredible stresses as they try to do more and more, often under extremely oppressive conditions including continuous surveillance and unsustainable performance targets.
Wage rises have been restrained and certainly not kept up with the rising cost of living — despite what Consumer Price Index (CPI) might suggest.
Behind the glowing profit statistics lies another story, that of the working people of Australia.
While the official unemployment figures are looking better, the reality is that the number of full-time jobs has fallen 38,000 since September and the number of part-time jobs has risen by 137,000. Chronic under-employment and job insecurity through casualisation and long-term employment are not being tackled, but rather buried behind an official 5.1 percent unemployment rate.
Millions of Australians are living on the edge and others heavily dependent on charities. Credit card debt almost hit $30 billion following the post Christmas sales. Students and former students are in debt to the tune of a whopping $9 billion and this debt is rising and will continue to rise for years to come in line with rising university fees.
Families are pushed beyond their limits — there is little prospect that they will spend more in the near future. The Reserve Bank is eager to contain inflation, which is certainly on the rise, and by raising interest rates, it dampen the economy.
Added to these woes is Australia's rising foreign debt — the net debt has hit the $400 billion mark, and continues to rise.
If interest rates rise, which the Reserve Bank has indicated is likely in the next few months, many families would have less to spend and many small businesses fold up.
Such a move would squeeze many more people into financial difficulties or into poverty or even out of their homes. Domestic demand would certainly fall at the very time the private sector is planning more investments and to increase capacity.
What we are witnessing is the boom phase a classic economic cycle as described by Marx. There are signs that the boom is reaching its end. There is a drop in retail spending by people and house prices are falling. The building and construction boom seems to have come to an end with new projects in decline and section of the industry in financial difficulties (Walter is one example).
At the very moment that the economy looks set to go into decline, the Reserve Bank is looking to squeeze it. Employers are continuing to sack workers and call for ways of reducing wages, and the government looking to force thousands of more people off welfare benefits and introduce legislation that will give employers greater powers to crush trade unions, dismiss workers, increase working hours and decrease wages.
What we need is exactly the opposite. Shorter working hours would lead to more jobs, and lower unemployment. Along with higher wages and increased pensions, this would increase purchasing power at the same time as improving people's standard of living. Such counter cyclical measures are needed now.
The government has an important role to play. Privatisation should be reversed and replaced by expansion of the public sector and the updating and production of new infrastructure. These are the sorts of policies that are required now.